Association for Public Policy Analysis & Management

Research Objective: Understanding the magnitude of the medical care and long-term care costs attributable to dementia is important for public and private decision makers, but estimating these costs has been difficult. First, identifying people with Alzheimer’s disease and related dementias (ADRD) can be difficult in secondary data, since diagnosis can be at different stages of the disease progression or lacking altogether. Second, one must isolate the costs attributable to ADRD among a population that has several co-occurring chronic and acute conditions. Third, our fragmented health system means that many players are responsible for different types of cost; Medicare, Medicaid, and the family all play sizable roles in funding care for individuals with ADRD. We estimate the public spending on ADRD using newly available data from the Health and Retirement Study (HRS) matched to Medicare and Medicaid claims data.

Study Design: Using survey responses from the HRS and linked Medicare claims from 1991-2012 and Medicaid claims from 1999-2009, we identify a retrospective cohort of older adults with ADRD (n=4,010). We examine Medicare and Medicaid expenditures for the 12 months prior and up to 60 months following a diagnosis of ADRD. In order to isolate the costs attributable to ADRD, we select a comparison group of HRS participants matching on sex, birth year, and HRS entry year (n=10,860). To calculate the marginal effect of ADRD on Medicare expenditures, we use the estimator described by Basu and Manning (2010) for estimating costs under censoring. This estimator also accounts for differential survival between individuals with and without dementia, separating the marginal effect on costs into the part brought about by dementia influencing length of survival and the part brought by dementia influencing intensity of health service utilization.

Population studied: HRS participants enrolled in a Medicare fee-for-service plan for the 12 months prior to and at least one month following a diagnosis of ADRD.

Principal Findings: The five-year incremental cost of dementia to the traditional Medicare program is estimated at $14,825. Increased costs for individuals with dementia were driven by more intensive use of Medicare part A covered services. Notably, 46% of the incremental cost is incurred in the first year after diagnosis. Incremental costs to the traditional Medicare program decrease over time, while incremental costs to the Medicaid program increase.

Conclusions: Medicare’s acute care insurance coverage bears considerable costs for ADRD, especially in the early stages after diagnosis. Medicaid’s acute care coverage helps to fill in the gaps in the Medicare program, but its long-term care coverage is driving the Medicaid costs among the dual-eligibles.

Implications for policy: The vast majority of the work to date estimating the cost of ADRD has focused on the cost covered by the Medicare program. This myopic view greatly underestimates the cost of ADRD to the public purse.